With the US presidential election only weeks away, investors are questioning how the consequences of the 2020 election will affect their portfolio. Modern history teaches us that regardless of the party that comes into power, short-term market movements following an election generally have not been indicative of long-term trends.
Many thought Hillary Clinton would be seeking a second term in 2020 until Donald Trump stunned the political universe with an election victory in 2016. As the votes were counted on the night of November 8, 2016 and a Trump victory seemed inevitable, the markets seemed to have an adverse reaction. The Dow Jones Industrial Average (Dow) futures dropped upwards of 900 points and the S&P 500 hit a trading limit after falling more than 5%. The next day, on November 9, 2016 the Dow closed up 250 points and the S&P 500 had gained 1.1% from the previous close. Since November 8, 2016 through today, the Dow has gained 50% and the S&P 500 has gained 57%*. Chart 1 sets forth short- and long-term returns of the Dow and S&P 500 following US presidential elections back to 1992.
Chart 1: Dow returns following recent presidential elections1:
Past market performance is not a guarantee of future results.
Chart 1a: S&P 500 returns following recent presidential elections1:
Past market performance is not a guarantee of future results.
Only twice in the last seven presidential election cycles has the US equity market (as measured by the Dow and S&P 500) had a negative return for the four year period following a presidential election, and one was at the start of the 2008 financial crisis. While this is no guarantee for market performance in the months and years following the 2020 election, the majority of the last seven election cycles illustrates the historical benefits of long-term equity market participation following an election.
With the backdrop of the current coronavirus pandemic, it seems important to mention the election of 1920. That election took place at the tail end of the Spanish flu pandemic which lasted from the spring of 1918 to the winter of 1920. The Spanish flu infected 500 million people worldwide and killed approximately 675,000 Americans. In the years following the 1920 election of Warren Harding, the Dow lost 5% in two months after the election, gained 21% through November 1922 and ended up 36% through November 1924. See Chart 2.
Chart 2: Dow average monthly returns following 1920 election2:
Past market performance is not a guarantee of future results.
While history shows us some market trends with respect to election cycles, predicting future returns in 2020, or any election cycle, is anything but an exact science.
For that reason, we continue to believe a prudent investor with a diversified and monitored portfolio is generally better positioned to succeed in the long-term. Investors should not allow long-term investment strategies to be dictated by what have historically been short-term swings after a presidential election. If your asset allocation made sense before election season began, it also likely makes sense after the election, regardless of which political party controls the Presidency, Senate or House of Representatives.
We are always happy to discuss your situation in more detail, so please do not hesitate to contact us with your questions or comments anytime.
1 GW & Wade; Historical closing prices provided by Yahoo Finance
2 Federal Reserve Bank of St. Louis (Please note S&P 500 data is not included as the S&P 500 was formed in 1957)
The information provided above is the opinion of the author, general in nature and is not intended to represent specific investment or professional advice. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship. Diversification and asset allocation do not ensure a profit or guarantee against loss. Past market performance is not a guarantee of future results.
In 2007, GW & Wade joined Focus Financial Partners as an indirect, wholly-owned subsidiary of Focus Financial Partners, LLC. Focus Financial Partners Inc. is the sole managing member of Focus Financial Partners, LLC and is a public company.
Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:
Laurie Wexler Gerber, Director of Marketing
GW & Wade, LLC
781-239-1188
lgerber@gwwade.com
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